With just days to go before Hong Kong is handed from Britain to China on July 1, the Hong Kong market is confounding even the most optimistic forecasters, virtually none of whom foresaw this almost raucously bullish sentiment on the eve
of such a precarious historical moment.

Not long ago, Hong Kong's stock market and property markets were expected to be suffering badly in 1997, on the assumption that mainland Chinese rule would devastate economic and political life here. Instead, both markets are near
their highs.

Optimism about China's surging economy and growing openness have been the moving force. This year, while Asia as a whole has been a tepid place for investors, Hong Kong's benchmark Hang Seng index has climbed more than 30 percent,
bursting through the previously unreached barrier of 15,000 last Friday.

"The Hong Kong market in recent years has been trading at a discount because of the coming change," said Christopher Wood, Asian and Emerging Markets strategist at Peregrine, a Hong Kong-based investment bank. "What's
been happening this year is that the discount has narrowed as people become more confident that the hand-over will go smoothly."

One factor, other analysts said, is a widespread expectation that Chinese authorities will take steps to insure that Hong Kong's market remains buoyant during and after the hand-over, part of an effort to show the world how confident
Hong Kong is about its future.

"Everyone figures, 'China will make sure the market stays high, so I may as well get in beforehand,' " said a senior executive at Merrill Lynch in Hong Kong. "But no one expected it to get this high."

In fact, the market got even hotter than Beijing wanted, partly because of a rush to sell new offerings of shares by companies with mainland interests, locally known as red chips, which have climbed even faster than the rest of the market
this year.

Last Friday, partly to cool the feverish interest in these mainland companies, Beijing announced new measures that make it harder for red chips to win approval to raise money in Hong Kong. Until now, red chip companies have enjoyed significantly
less regulation than Chinese companies listed on the Shanghai and Shenzhen stock exchanges.

The new measures came as a surprise -- no one expected Beijing to introduce new market-cooling regulations so close to the hand-over. Yet China's regulators seemed concerned by the near-frenzy of buying in Hong Kong's stock market,
and apparently calculated that their new rules would rein in some of that exuberance without causing too sharp a drop.

As it turned out, the market indeed fell mildly in Monday's and Tuesday's sessions. The Hang Seng index closed on Tuesday at 14,890.96 points, or down 130.27 points.

Even as it cools slightly, the general exuberance in Hong Kong's market still seems dangerously high, some economists say, if not quite irrational.

"Overexcitement can lead to underexcitement," said Miron Mushkat, chief economist at Lehman Brothers in Hong Kong. "If everything collapses six months later, these gains will be viewed as having been an artificial bubble.
That will be very disappointing."

Even so, Mushkat said he saw positive signs that the market would remain strong for the rest of the year, a sentiment that is widely echoed by other economists and analysts and brokers.

Hong Kong's long-term future seems harder to predict. Envisioning possible outcomes has almost become a parlor game in the city's financial community, and everyone seems to have an opinion.

Gary Coull, chief executive of Credit Lyonnais Securities Asia, predicted that Hong Kong would grow steadily as a financial center in the coming decades, even if it tended to act more as a place for Chinese companies to raise capital than
as an international center.

"The Hong Kong financial community will easily grow to supplant other centers in Asia," Coull said. "The idea of Hong Kong as an international financial center might suffer, but its role for China will more than compensate."

With 350,000 enterprises in China that need money, Coull predicted, 300 or so will probably attempt public offerings each year for the next 20 years, and many of those will undoubtedly be in Hong Kong.

In contrast, an economist, Marc Faber, foresees the demise of Hong Kong's singular position over the next decade, primarily because with high real estate and other prices, it could lose its competitive edge.

"It was the only bridge to China for a long time," Faber said. "But you can have lots of bridges to China now, so you can't keep charging a high toll."

Known in Hong Kong for his contrarian gloominess, which has earned him the name "Dr. Doom," Faber predicted that within 10 years, Hong Kong would simply be one of 20 large cities in southern China, with few of its privileges
left.

Then again, a decade ago, when the transition to Chinese rule was only in the nebulous future, that is what many people expected Hong Kong to be by now. Since then, moves like the appointment of a shipping magnate, Tung Chee-hwa, as the
future leader of Hong Kong, have reassured some investors.

"If you'd said 10 years ago that the stock and property markets would be at an all-time high," Wood of Peregrine said, "that senior members of the civil service would all be staying on, that a businessman like C.H.
Tung would be chief executive, well, no one would have believed you."